Weekly Trader's Outlook

If you read the last week's blog, you might recall that my forecast for this week was "Moderately Bearish," citing the uptick in "risk off" sentiment from investors and some technical deterioration. This week, the "risk off" mode accelerated, particularly in areas of the market associated with the software industry and cryptocurrency. However, this wasn't a "sell everything" week as money rotated into other areas of the market viewed as a relative value/safety play. Several sectors hit fresh all-time highs this week, such as industrials, materials, energy, and consumer staples, and the S&P Equal Weight index (SPXEW) is trading at a fresh all-time high today. However, the market-cap-weighted S&P 500 index (SPX) is on track to be down 0.35% and the Nasdaq Composite ($COMP) is on track to lose 2.0% on the week, which helps paint the picture. Investor concerns around artificial-intelligence (AI) disruption within the software industry have translated into massive selling, sending the iShares Expanded Tech-Software Sector ETF to the most oversold state since 2001 (the Relative Strength Index hit 14 yesterday). Bitcoin, which was around $83,000 last Friday, hit $60,000 earlier this morning but is snapping back towards $70,000 today. Does today's "risk on" bounce signal that we hit a capitulation extreme in software/crypto and the near-term low is in place? Of course that's a possibility, but it's too early to be sure.

Earnings reports continued to pour in this week, and the eye-popping hikes in capital expenditure (CapEx) budgets from two hyperscalers generated a lot of buzz this week. Alphabet reported stellar results on Wednesday (cloud revenue jumped 48% year-over-year for example) and guided full-year 2026 (FY26) CapEx to a range of $175-185B, which was well above the $115B analysts were expecting. Yesterday, Amazon reported mixed results and set a FY26 CapEX forecast of $200B, which was more than $50B above analyst estimates. The spending hikes signal executive confidence in AI, healthy demand, and suggest that the AI infrastructure buildout still has more room to run.

Speaking of earnings, out of the 291 S&P 500 companies that have reported results, 65% have beat on the top line while 79% have beat on the bottom line. Revenue growth has been +9.25% year-over-year while EPS growth is tracking at 13.64%. FactSet is currently forecasting blended Q4 EPS growth for the SPX to be approximately 11.9-12.1%, while 2026 EPS growth is expected to be ~14.3-15.0%.

In other economic news, the government shutdown delayed some reports, but there were multiple signs of labor market deterioration from what was released. It's unclear how long this weakness can persist before it impacts economic growth, but consumers typically need a job to spend money which accounts for ~70% of U.S. GDP. We'll get more insight into the state of the labor market next Wednesday when the January Nonfarm Payrolls report is released (more on this in the "Economic Data, Rates & the Fed" section below).

At the time of this writing (2:30 p.m. ET) stocks are higher across the board and near the highs of the session, and the Dow Jones briefly eclipsed the 50,000 level for the first time ever (DJI + 1,105, SPX + 117, $COMP + 427, RUT + 87). One the one hand, it's encouraging to see fresh all-time highs in the Dow and S&P Equal Weight indices. On the other hand, I'm asking myself whether today's sharp bounce-back in higher risk areas of the market, like software and crypto, is a legitimate signal of capitulation/seller exhaustion, or whether it's a short-term oversold bounce that will give in to more selling pressure next week. It's impossible to know at this point in time but given the healthy price action in other non-tech/crypto areas of the market, along with the 17% drop and sub-20 VIX, I'm feeling optimistic that tech can at least stabilize from here. The other question is the deterioration in labor market data, though markets didn't seem to react negatively to yesterday's reports. We'll get the monthly jobs report next Wednesday, if payrolls come in well below estimates, or unemployment makes a notable jump, will markets be able to shrug that off? Then there's the technical setup: the $DJI, SPXEW look bullish, the SPX is bouncing off support today, but the $COMP & NDX fell through support this week and the near-term outlook is questionable (more on this in the "Technical Take" section below). Taking it all into account, this week's rotation into other areas of the market is healthy in my view, and because the extent of the sell-off in software and crypto was so extreme, I'm assuming that the mean reversion bounce will extend longer than just today, so I'm providing an overall "Moderately Bullish" forecast for next week. What could challenge my forecast? Honestly, I'm a little concerned of a bearish confirmation in the $COMP and NDX, meaning that the indices continue to move higher early next week but encounter resistance at the underside of the 100-day SMA and turn lower (this is technically called a bearish "pullback"). Should that occur, this could broadly dampen investor sentiment and the selling could spill over into the overall market. The other potential concern is a really weak Nonfarm Payrolls report.

• Monday (Feb. 9): no reports
• Tuesday (Feb. 10): Business Inventories, Employment Cost Index, Export Prices ex-ag, Factory Orders, Import Prices, Retail Sales
• Wednesday (Feb. 11): Nonfarm Payrolls, Average Hourly Earnings, Average Workweek, Unemployment Rate, EIA Crude Oil Inventories, MBA Mortgage Applications Index, Treasury Budget
• Thursday (Feb. 12): Producer Price Index (PPI), Continuing Claims, EIA Natural Gas Inventories, Existing Home Sales, Initial Claims
• Friday (Feb. 13): Consumer Price Index (CPI)
   

• Monday (Feb. 9): Apollo Global Management Inc. (APO), Arch Capital Group Ltd. (ACGL), Becton Dickinson and Co. (BDX), Cincinnati Financial Corp. (CINF), Cleveland-Cliffs Inc. (CLF), CNA Financial Corp. (CNA), Dynatrace Inc. (DT), Monday.com Ltd. (MNDY), ON Semiconductor Corp. (ON), Principal Financial Group (PFG), Waters Corp. (WAT)
• Tuesday (Feb. 10): America Movil SAB de CV (AMX), Barclays PLC (BCS), BP PLC (BP), Cloudflare Inc. (NET), Coca-Cola Co. (KO), CVS Health Corp. (CVS), Duke Energy Corp. (DUK), Gilead Sciences Inc. (GILD), Marriott International Inc. (MAR), Robinhood Markets Inc. (HOOD), S&P Global Inc. (SPGI), Spotify Technologies SA (SPOT)
• Wednesday (Feb. 11): Applovin Corp. (APP), Cisco Systems Inc. (CSCO), Equinix Inc. (EQIX), Hilton Worldwide Holdings Inc. (HLT), Martin Marietta Materials Inc. (MLM), McDonald's Corp. (MCD), Motorola Solutions Inc. (MSI), NetEase Inc. (NTES), Shopify Inc. (SHOP), T-Mobile US Inc. (TMUS), Vertiv Holdings Co. (VRT)
• Thursday (Feb. 12): Agnico-Eagle Mines Ltd. (AEM), Airbnb Inc. (ABNB), American Electric Power Company Inc. (AEP), Anheuser-Busch Inbev SA (BUD), Applied Materials Inc. (AMAT), Arista Networks Inc. (ANET), Brookfield Corp. (BN), Howmet Aerospace Inc. (HWM), Vertex Pharmaceuticals Inc. (VRTX), Zoetis Inc. (ZTS)
• Friday (Feb. 13): Cameco Corp. (CCJ), Enbridge Inc. (ENB), Magna International Inc. (MGA), Moderna Inc. (MRNA), Natwest Group PLC (NWG), TC Energy Corp. (TRP)

There was limited economic data this week due to the government shutdown, though there were several standouts from the reports we received. First, there were multiple signals pointing to weakness in the labor market—the ADP report showed paltry payroll gains, job openings dropped to the lowest level in five years, Challenger layoffs hit the highest level since 2009, and even weekly claims, which have been subdued recently, hit a two-month high. On the bright side, factory output, as measured by the S&P global manufacturing Purchasing Managers' Index (PMI), was at the strongest level since 2022. The monthly Nonfarm Payrolls report which was initially scheduled to come out today is slated to be released next Wednesday while the CPI report is scheduled to be released next Friday (13th) rather than next Wednesday (11th). Here's a breakdown of the reports:

• ADP Employment Change: Private payrolls increased 22,000 in January, which was below the 45,000 economists had expected. Additionally, December job gains were downwardly revised to 37,000 from the initial report of 41,000.
• JOLTs – Job Openings: Dropped to 6.542M in December from (a downwardly revised) 6.928M in November, which was below the 7.25M economists were expecting. This represents the lowest level since late 2020.
• Challenger Layoffs: Layoffs from U.S. firms totaled 103,435 in January, which is more than double last January's 49,795 cuts and the highest figure since 2009, when 241,749 layoffs were reported. Companies hiring plans totaled 5,306 in January, which represents the lowest total since Challenger began tracking hiring plans in 2009.
• S&P Global U.S. Manufacturing PMI – Final: U.S. manufacturing output growth moved up to 52.4 in January from 51.8 in December. This represents the strongest production growth since May 2022, though new orders only grew modestly.
• ISM Non-Manufacturing Index: The index was unchanged month-over-month at 53.8%, which matches the highest level since late 2024.
• S&P Global U.S. Services PMI – Final: Ticked up to 52.7 in January from 52.5 in the prior month, and above the 52.5 economists had expected.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 22K from last week's (upwardly revised) 209K to 231K, which represents a two-month high and was well above the 212K economists had expected. Continuing Claims rose 25K to a seasonally adjusted 1.844M from last week's 1.819M.
• University of Michigan Consumer Sentiment: Rose to 57.3 in February from 56.4 in January, which was above the 55.0 estimate. One-year inflation expectations sank to 3.5% from 4.0% in the prior month, while longer-term inflation expectations edged up to 3.4% from 3.3%.
• EIA Crude Oil Inventories: -3.46M barrels.
• EIA Natural Gas Inventories: -360 bcf.
• The Atlanta Fed's GDPNow "nowcast" for Q4 GDP is unchanged at t 4.2% versus last week.

U.S. Treasury yield curve is little changed on a week-over-week basis, but there was some intraweek gyration. For example, yields on the 10-year are back down to 4.21% today after hitting 4.30% on Tuesday. Compared to last Friday, two-year Treasury yields are lower by ~2 basis points (3.502% vs. 3.527%), 10-year yields are down ~3 basis points (4.214% vs. 4.241%), while 30-year yields are lower by ~1 basis points (4.862% vs. 4.872%).

Market expectations for rate cuts from the Federal Reserve in 2026 are little changed this week, and appear to be conveying that current Fed Chair Powell is not going to deliver any more rate cuts before his exit in May. Per Bloomberg, the probability of a 25 basis point cut from the Fed in March is essentially unchanged at 16%, April is down slightly to 33% from 36%, while June is up to 91% from 86%.

Market expectations for rate cuts from the Federal Reserve in 2026 ticked up versus last Friday, in part due to a relatively dovish Federal Open Market Committee (FOMC) meeting, then in response to the Warsh announcement. Per Bloomberg, the probability of a 25-basis-point cut from the Fed in March is essentially unchanged at 16%, April is up slightly to 34% from 32%, and June is up to 84% from 74%.

Last week I had a "neutral to cautious" technical assessment on the Nasdaq 100 (NDX), noting the higher frequency of support tests at the 100-day SMA (the green arrows in the chart below). On Tuesday the NDX tested support at this moving average and it held, but dropped through it on Wednesday, primarily driven by concerns over AI disruption in the software industry. The "support breach" is technically bearish, but the index is rallying back nearly 2% today after a potential capitulation sell-off in software stocks. I say "potential" capitulation because we don't know if today is a "dead cat bounce" or the start of a longer-term recovery in sentiment around tech. If the rebound continues next week, it will be interesting to see if the NDX can get back above the 100-day SMA. If it runs up to this moving average (currently 25,206) and then reverses lower, this would be a bearish pullback and send a signal that there may be more downside in the coming weeks. Therefore, I'm going to remain in the cautious camp unless/until the NDX can get back above the 100-day SMA.

Near-term technical translation: cautious, unless/until 100-day SMA is reclaimed

While the S&P 500 Equal-Weight (SPXEW) notched a fresh all-time high today, the market-cap-weighted S&P 500 index (SPX) has been negatively impacted by the recent selling pressure in the technology space. The good news for the bulls is that the SPX is bouncing off the 100-day Simple Moving Average (SMA), which is a support level that held back in November. However, the index appears to be rangebound between roughly 6,800 and 7,000 and the near-term direction will likely be dictated by the tech sector. If the selling pressure in the software space is over, meaning it reached a capitulation point this week, then perhaps the index will be able to challenge last week's high near 7,000.

Near-term technical translation: slightly bullish due to support bounce, though still rangebound

Cryptocurrencies had another volatile week with bitcoin falling to $60,000 on Thursday. This weakness may have been the result of precious metals and basis trades being unwound, in addition to technology stocks coming under pressure. While historically bitcoin has exhibited a low correlation to other asset classes, recently it has been highly correlated with mega-cap technology companies. Since its October peak, bitcoin had fallen 50%, before rebounding closer to $70,000 at the time of writing this. This sharp selloff has emboldened believers of the four-year halving cycle that the crypto market is going through its fourth "bitcoin winter," periods where bitcoin has fallen over 75% from its peak. These "winters" have historically occurred in third year following a bitcoin halving, with cycle peaks occurring late in the second year following the halving. What believers of this theory miss is each "bitcoin winter" has followed a fundamental catalyst. In 2014, bitcoin fell 85% following the hack of Mt. Gox, a Japanese crypto exchange. 2018's winter saw bitcoin fall 83% following the bursting of the initial coin offering (ICO) bubble. 2022's winter came amid a broad selloff in risk assets as the Fed embarked on their latest rate-hike cycle. That said, given the recent events that started in October, believers of this theory may feel vindicated.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, the SPX and CCMP are on track to be lower on the week, while the RTY looks to tack on slight gains, but market breadth contracted across the board. The standout this week is the rollover in market breadth on the CCMP, which has been occurring due to the carnage in software-related companies. Compared to last Friday's, the SPX (white line) breadth declined to 63.44% from 67.27% and the CCMP (blue line) sank to 43.05% from 48.51%, while the RUT eased to 63.4% from 64.77%.